Let’s begin with an illustration to set the context for explaining e-mandates.
In 2005, Mr. Mehra needed money for some miscellaneous expenses and applied for a personal loan. Since the process involved was manual and paper-based, the bank officials took a lot of time to disburse the amount. However, the challenges didn’t end there.
They had to create physical mandates for loan repayments in affordable EMIs, which involved a lot of paperwork. A bank official was also assigned to visit Mr. Mehra’s place to collect cheques for EMIs.
Since 2018, the recurring payment collection process has changed drastically in India with the introduction of e-mandates. This service has made the process simpler and quite easy for the lenders to collect recurring payments and save on operational expenses.
Let’s uncover various aspects related to the e-mandate.
What is e-mandate?
E-mandate is a digital payment service initiated by the National Payments Corporation of India (NPCI) and RBI. It provides the underlying IT infrastructure to businesses in India to allow them to collect recurring payments.
A mandate refers to the standing instruction that an individual provides to an issuing bank to allow them to debit a specific amount from his/her bank account automatically.
E-mandate meaning refers to the electronic form of mandates used by businesses to manage various types of recurring payments easily. The e-mandate process tends to eliminate the hassles of sending reminders and asking for penalty charges to the consumers and eventually proves to be a win-win at both ends.
While businesses have been collecting recurring payments like SIPs, insurance premiums, etc. for a long time, the process was authorized via a physical form to be filled and signed by the end-user. E-mandate and e-NACH simplified the process as a whole.
Advantages of e-Mandate
E-mandate, since its introduction, has helped several industries in adopting the recurring payment model. Given below are some of the major advantages of e-mandates for businesses:
Reduced friction in the payments process
As a business owner, you can auto-debit the customers’ bank accounts with recurring payments using e-mandate. As a result, there is less friction in the payments process in which the customers need to log in to your website or app to make payments regularly. E-mandate also ensures continuous cash flow for your business.
Higher customer retention
With one-time digital authentication, you are allowed to auto-debit your customer’s bank account. On one hand, it helps your customers enjoy the benefits of getting your products/services without interruption. On the other, it builds a loyal customer base and increases customer retention.
Money savings with auto-reconciliation
Since most of the transaction details are captured and tracked online with e-mandates, you need not spend time or money in buying and using reconciliation tools. In simple terms, e-mandates also come with the benefit of auto-reconciliation.
Simple and easy steps to activate e-mandate
The entire e-mandate process is quite simple and you only need the customers’ bank account or card details to enroll them for recurring payments as per the chosen product/service plan.
Industry-wise adoption of e-mandates
With the growing popularity of e-mandates, it has been adopted by businesses across multiple industries having their own set of unique challenges. Here’s the list of industries who use e-mandate and benefited the most with it:
The wealth management industry has grown manifold with the success of online platforms that allow individuals to manage their financial portfolios and achieve various financial goals. These platforms also enable them to invest in different financial products online.
For investments that require recurring payments, these businesses ask individuals for authorization of recurring debits. With e-mandate, this authorization can be given online. As a result, both the business owners and investors enjoy the hassle-free experience of investing.
For the lending industry, the auto-debit feature of the e-mandate results in easy collection of loan repayments. The mandates allow them to deduct the said amount from the borrowers’ bank account on a particular day every month, without the need to run behind each of the borrowers for timely repayments.
The borrowers, on the other hand, do not need to visit banks multiple times, which in turn reduces the TAT as compared to the traditional method.
E-mandates have helped many lending businesses in reducing their operating costs and ensuring smooth money movements.
With more people understanding the need for mutual help, various NGOs now ask for support for various social initiatives, like sponsoring a child, sending groceries every month to different households, etc.
Since there is a chance that a donor misses out on the date of making a periodic donation, many NGOs have also started e-mandates. It simplifies the process of receiving donations regularly so that they can continue to benefit the needy.
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Life insurance purchase involves regular premium payments by the insured in most cases. To accept these premiums, the life insurance companies can now use e-mandates and avoid missing out on receiving a single premium.
At the time of selling a life insurance plan online, they can set a particular amount that will be auto-debited on a specific date without manual intervention.
More about e-mandates and how they transform digital payments in India
E-mandates have helped fast-track different types of recurring payments by reducing the friction in the payment process. They ensure secure and instant payments without sending reminders or asking for OTPs.
You should also know the following facts about e-mandates in India:
- E-mandates tend to replace the physical mandate system of ECS or Electronic Clearing Service
- Managing e-mandates is fast, easy, and completely digital
- They give the customers good control over initiating and managing the mandates
- E-mandates involve a one-time transaction authorization at the start of a billing cycle and then automating all the subsequent payments
- They can be managed in two ways – either through individual e-mandate systems of banks (available with 4-5 banks) or the NPCI e-NACH route (available with 45 banks)
- Recurring payments like phone bills, insurance premiums, children school fees, SIPs, etc. can be automated using e-mandates
- UPI 2.0 now extends support for UPI mandates by enabling recurring payments
How to integrate e-mandates for your business
If you want to benefit from using e-mandates for your business, start using Paytm Subscriptions. The API-based integration of Paytm Subscriptions can help you go live with various modes of recurring payments – cards, NACH e-mandate, PaperNACH, and even UPI AutoPay.
You can also use the Paytm For Business dashboard to Paytm Subscriptions without the need for any integration.
New RBI guidelines for e-mandates (wef Oct 1, 2021)
To further safeguard consumers’ interest in terms of recurring payments, RBI has issued new guidelines for e-mandates or standing instructions. With these guidelines, the recurring transactions made via all types of cards – credit, debit, Prepaid Payment Instruments (PPIs), or even wallets, have been brought under the ambit of Additional Factor of Authentication (AFA).
It means that the banks will not approve any e-mandate for recurring transactions unless it passes through the RBI compliance.
You should also know the following details about the recent RBI guidelines for e-mandates:
- Two-factor authentication is mandatory irrespective of the amount being processed
- For transaction amount above Rs. 5,000, the end-users’ card will be charged only after he/she gives consent for the same
- He/she will also receive a notification 24 hours prior to the debit
- The guidelines are applicable for all categories of merchants that accept recurring payments based on e-mandates
- The withdrawal of any e-mandate by the end-user (cardholder) also entails AFA validation
Questions you might have in mind about e-mandates
How are e-NACH and e-mandates correlated?
E-NACH and e-mandates allow businesses and their customers to benefit from recurring payments. For example – if you sell insurance online, you can allow the insured individuals to sign up for a plan through e-mandate. This will schedule all their premium payments via one-time authorization.
What is the difference between e-NACH (Electronic – National Automated Clearing House) and e-mandate?
While both these services deliver the same result of automating recurring payments, they are different from each other. NPCI governs e-NACH and makes it available with 40+ banks. On the other hand, individual banks control e-mandates and they are currently available with 4-5 banks.
How does e-mandate work?
As a business owner, you can easily set up e-mandates through a net banking transaction from your business website. For this, you would require a one-time net banking transaction authorization from your customers, after which all the subsequent payments will happen automatically without the need for any customer intervention.
How are e-mandates different from ECS?
The main difference between ECS and e-mandates is that the former is an offline process and requires physical documents to be filed and checked manually. E-mandate, on the other hand, is totally paperless and involves an online process.
Which customers can apply for the e-mandate service?
Individuals who have Aadhar-linked bank accounts with a participating bank can apply for e-mandates.
Is there any limit for the number of e-mandates made through one bank account?
There is no limit to the number of e-mandates that you can set up for one account.
What happens to e-mandates if the linked bank account has an insufficient balance?
As in the case of any other online transaction, the payment will be denied.
How do the payments made through e-mandates appear in a bank statement?
Such recurring payments are reflected as NEFT bank transfers from a customer’s bank account to the merchant account.
How can I set up e-mandates or e-NACH to collect recurring payments from my customers?
You can start using Paytm Subscriptions to automate recurring payments via e-mandates and other payment sources like credit cards.